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32 Cards in this Set

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Price Elasticity of Demand
Perfectly Elastic
Magnitude: Infinity
The smallest possible increase in price causes an infinitely large decrease in the quanitity demanded
Price Elasticity of Demand
Elastic
Magnitude: Less than infinity but not greater than 1
The percentage decrease in the quantity demanded exceeds the percentage increase in price
Price Elasticity of Demand
Unit Elastic
Magnitude: 1
The percentage decrease in teh quantity demanded equals the percentage increase in price
Price Elasticity of Demand
Inelastic
Magnitude: Greater than zero but less than 1
The percentage decrease in teh quantity demanded is less than the percentage increase in price
Price Elasticity of Demand
Perfectly inelastic
Magnitude: zero
The quantity demanded is the same at all prices
Cross Elasticities of Demand
Close Substitutes
Value: Large
The smallest possible increase in teh price of one good causes an infinitely large increase in the quantity demanded of the other good
Cross Elasticities of Demand
Substitutes
Value: Positive
If the price of one good increases, the quantity demanded of the other good also increases
Cross Elasticities of Demand
Unrelated Goods
Value: Zero
If the price off one good increases, the quantity demanded of the other good remains the same
Cross Elasticities of Demand
Complements
Value: Negative
If the price of one good increases, the quantity demanded of the other good decreases
Income Elasticities of Demand
Income elastic (normal good)
Value: Greater than 1
The percentage increase in the quantity demanded is greater than the percentage increase in income
Income Elasticities of Demand
Income inelastic (normal good)
Value: Less than 1 but greater than zero
The percentage increase in the quantity demanded is less than the percentage increase in the income
Income Elasticities of Demand
Negative income elastic (inferior good)
Value: Less than zero
When income increases, quantity demanded decreases
Elasticities of Supply
Perfectly elastic
Magnitude: Infinity
The smallest possible increase in price causes an infitely large increase in the quanntity supplied
Elasticities of Supply
Elastic
Magnitude: Less than infinity but greater than 1
The percentage increase in the quantity supplied exceeds the percentage increase in teh price
Elasticities of Supply
Inelastic
Magnitude: Greater than zero but less than 1
the percentage increase in teh quantity supplied is less than the percentage increase in the price
Elasticities of Supply
Perfectly inelastic
Magnitude: zero
The quantity supplied isthe same at all prices
Elasticity
the measure of the responsiveness of the quantity demanded of a good to a change in its price, other things remaining the same.
Price elasticity of demand
equals the percentage change in the quantity demanded divided by the percentage chang in price.
Magnitude of price elasticity
the large the magnitude of the price elasticity of demand, the greater is the responsiveness of the quantity demanded to a given change in price.
Price elasticity of demand
depends on how easily one good sersves as a substitute for another, the proportion of income spent on the good, and the length of time elapsed since the price change.
If demand is elastic
a decrease in price leads to an increase in total revenue. If demand is unit elastic, a decrease in price leaves total revenue unchanged. And if demand is inelastic, a decrease in price leads to a decrease in total revenue.
Cross elasticity of demand
measures the repsonsiveness of demand for one good to a change in the price of a substitute or a complement, other things remaining the same
The cross elasticity of demand
with respect to the rpice of a substitute is prositive, hte cross elasticity of demand with respect to the price of a complement is negative
Income elasticity of demand
measures the repsonsiveness of demand toa change in income, other things remaining the same, for a normal good, the income elasticity of demand is positive, for an inferior good, the income elasticity of demand is negative.
Income elasticity of demand
when the income elasticity of demand is greater than 1 (income elastic), the percentage of income spent on the good increases as income increases.
Income elasticity of demand
when the income elasticity of demand is less than 1 (income inelastic and inferior), the percentage of income spent on the good decreases as income increases.
Elasticity of supply
measures the responsiveness of the quantity supplied of a god to a change in its price.
Elasticity of supply
the elasticity of supply is usually positive and ranges between zero (vertical supply curve) and infinity (horizontal supply curve).
Supply decisions
have three time frames:
momentary
long run
and short run
Momentary Supply
refers to the response of sellers toa price change at the instant that the price changes.
Long-run supply
refers to the response of sellers toa price change when all the technologically feasible adjustments in prodicion have been made.
Short-run supply
refers to the response of sellers toa price change after some of the technologically feasible adjustments in production have been made.